BSU Inc. wants to purchase a new machine for $40,000, excluding $1,400 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage value. This old machine now has a book value of $2,200, and BSU Inc. expects to sell it for that amount. The new machine would decrease operating costs by $9,000 each year of its economic life. The straight-line depreciation method would be used for the new machine, for a six-year period with no salvage value.
Determine the approximate internal rate of return. (Round answer to 0 decimal places, e.g. 10.)
2. Brady Service Center just purchased an automobile hoist for $32,340. The hoist has an 8-year life and an estimated salvage value of $3,310. Installation costs and freight charges were $3,602 and $880, respectively. Brady uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Brady estimates that the new hoist will enable his mechanics to replace 5 extra mufflers per week. Each muffler sells for $75 installed. The cost of a muffler is $37, and the labor cost to install a muffler is $17.
Compute the annual rate of return for the new hoist.